Is Tate & Lyle a good investment? I weigh up this FTSE 250 UK stock

The Tate & Lyle share price is rising on positive Q3 results. This FTSE 250 stock has had a volatile fie years, so does it make a good long-term investment?

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FTSE 250 dividend stock Tate & Lyle (LSE:TATE) is a specialist ingredient maker. Concerns were rising that the company was suffering as restaurant lockdowns caused ingredient sales to fall. But third-quarter results showed a positive upturn with 8% revenue growth for the period.

Tate & Lyle’s North American division thrived as at-home consumption generated increased sales and out-of-home performance gradually improved. As the Tate & Lyle share price rises in response to good third-quarter results, does this mean it’s onwards and upwards for the stock?

Tate and Lyle share price overview

Over the past five years, the Tate & Lyle share price has risen 10%. However, it has shown extreme volatility during this time. It has a price-to-earnings ratio of 13, its earnings per share are 52p, and its dividend yield is 4.3%. Its steady dividend policy gives it investor appeal and reassurance during share price volatility. But its dividend cover is less than 2 times its earnings, so if the pandemic continues to hamper sales then this could come under pressure.

Cutting edge of innovation

One ground-breaking technology Tate & Lyle is involved in is edible food packaging. According to Grand View Research, the edible food packaging market is projected to grow at a compound annual growth rate (CAGR) of 6.2% from 2018 to 2025 globally. There are a number of advantages to edible packaging. First, it protects the food against various microbial contaminants and prolongs its life. Then, it also addresses concerns about waste amid the rising consumption of ready-meals.

Another area where Tate & Lyle is making strides in is helping companies reduce sugar, fat, and calorie content in their products to make less-fattening foods more easily available. In a recent survey, the company discovered 73% of European bakery manufacturers say reduced sugar and calorie products are their biggest driver of growth. This is likely to be an ongoing theme in selling more ingredients.

Expansion

In fact, last month the FTSE 250 firm confirmed its acquisition of stevia company Sweet Green Fields. I think this purchase will help it expand its global presence in the sweetener production business. In its third-quarter results, it showed strong growth in Asia Pacific, an area where it’s focussed on expanding its footprint.

Last year, Tate & Lyle also made moves into the personal care sector with its Texturlux range in North America. This range is a selection of bio-based speciality polymers for skin, hair, and sun care products. This move could prove highly lucrative if it can make successful inroads.

ESG awareness

Nowadays, awareness of environmental, social and corporate governance (ESG) factors is increasingly important for large companies looking to progress in a globalised world. According to Morningstar company Sustainalytics, Tate & Lyle has a medium risk rating for its exposure to ESG issues. It also received an average risk rating for the way it’s managing these ESG issues. In its trading statement, the company confirms its commitment to achieving ambitious ESG targets.

As long as the pandemic persists, there remain risks to the business revenues. Nevertheless, no matter how the economy fluctuates, we still need to eat and consume personal goods. As an ingredient producer for many of our most commonly consumed products, I think Tate & Lyle is in a stable position for growth. It’s a stock I’d consider adding to my Stocks and Shares ISA as a long-term investment.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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